Lululemon Shares Plunge After Second Full-Year Forecast Cut

Lululemon Athletica (LULU) shares plunged in premarket trading Friday after the sportswear company cut its full-year forecast for a second time, signaling significant challenges for incoming CEO Heidi O’Neill. The revised outlook reflects persistent weakness in its core North American market and the impact of intensifying competition.

Market Reaction

Shares in the apparel firm fell approximately 18% in premarket trading, according to a report from Reuters. If those losses hold at the market open, it would erase more than $2.5 billion from Lululemon's market capitalization and deepen the stock's year-to-date decline to roughly 41.5%.

Following the results, at least 12 brokerages lowered their price targets on the stock. According to data compiled by LSEG, Piper Sandler set the lowest target on the Street at $80 per share.

Weakening North American Sales

The forecast reduction comes as Lululemon contends with several quarters of declining sales, which the company has attributed to merchandising missteps and an increased reliance on promotions. The firm is also facing inflationary pressures that are weighing on discretionary consumer spending.

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Revenue in the Americas, Lululemon's largest market, fell 8% in the second quarter. This marks a sharp reversal from the 1% increase reported in the same period a year earlier and underscores the difficulty the brand faces in reigniting demand.

New CEO Faces Turnaround Task

The bleak forecast sets a challenging stage for Heidi O’Neill, a former Nike executive who is scheduled to take over as CEO on September 8. Her primary task will be to restore growth and reinvigorate demand in the crucial North American region.

Analysts expressed caution about the company's near-term prospects. Morgan Stanley warned that sales could deteriorate further in the second half of the year, with limited visibility on a potential recovery, raising the risk of continued pressure on profit margins. Based on LSEG data, Lululemon now trades at a forward price-to-earnings ratio of about 11.5, compared with 20.8 for Nike and 13.4 for Adidas.